You are provided with information for the financial year ended 28 February 2016, taken from the books of Chuta Ltd, a listed public company - NSC Accounting - Question 5 - 2016 - Paper 1

For part (a), you will incorporate sections that detail the cash inflow and outflow: (a) The total inflow from sales:

• Given amount: R1,900,000 (b) The total outflow:
• Total expenses amounting to R900,000. (c) The net cash flow from operations should be calculated, subtracting outflows from inflows leading to a comprehensive display of operating cash.

To calculate the income tax paid:

• Use the figures provided, as stated in the marking scheme.
• The taxable amount is R1,240,000 less any allowable deductions such as R882,000, and other adjustments leading to a total income tax paid line amount.

The net change will be calculated by taking the starting balance and adjusting with inflows and outflows.

1. Start with R549,580 cash available.
2. Adjust with the total net inflows of operations.
3. Subtract outflows leading to an end balance which indicates the net change.

This section will list all financing activities undertaken during the year including the sources and uses of cash.

• Proceeds from loans and issuance of shares, and any dividend payments should be accounted for clearly.

Net asset value is calculated as follows:

• Total Assets = R5,950,800;
• Total Shares = R1,500,000; The formula used: $\text{Net Asset Value per Share} = \frac{\text{Total Assets}}{\text{Total Shares}} = \frac{5,950,800}{1,500,000} = 396.7 \text{ cents}$

Using the average shareholders' equity figures:

• Average equity is calculated from the provided figures, combined yearly results, and then put through the rate of return formula leading to: $\text{Return} = \frac{\text{Net Income}}{\text{Average Shareholders' Equity}} \times 100$. The resultant ratio gives a measure of the return generated.

Using the standard formula for the debt-equity ratio:

• Debt: R1,950,000, Equity: R5,950,800. The calculation is given as: $\text{Debt-Equity Ratio} = \frac{\text{Total Debts}}{\text{Total Equity}} = \frac{1,950,000}{5,950,800} = 0.33: 1$

Relevant indicators include:

1. Current Ratio, showing improvement from 1.8:1 in 2015 to 3.3:1 in 2016, indicating enhanced liquidity.
2. Acid Test Ratio, illustrating a rise from 1.2:1 to 1.6:1 across the same period.
3. Stock turnover rate, demonstrating the company's decreasing inventory management efficiency.

Increasing the loan was beneficial due to:

1. R.O.T.C. standing growth from 21.2% to 24.2%, nearing above interest costs.
2. Debt-Equity Ratio increasing providing less extremism, moving from 0.09:1 to 0.33:1 signifies a focus on preserving own finance.

The reasoning should highlight:

• The buyback price was R4.30 per share, lower than previous market prices (2015 - 480c; 2016 - 505c).
• Discuss average share price dynamics leading to a favorable buyback scenario.